A person or company that produces or sells products of any kind must worry about liability. Under the laws of most nations, producers of products are liable to the users and purchasers of those products, and, in many cases, their families and other users, associates and bystanders. Under many products liability regimes, the seller, or manufacturer of a product may be held liable, despite their lack of fault, and despite fault on the part of third parties that contributed to the characteristic of the product that gave rise to the liability. A typical manufactured product contains parts manufactured and sold by a number of parties, and is produced by machinery supplied by a number of parties. The services of yet another large number of parties are typically used in the production of many, if not most manufactured products.
Any or all of these parties could supply defective component parts, defective machinery, or engage in negligence while performing their services, all of which could expose the ultimate manufacturer to liability due to alleged manufacturing defects, design defects or insufficient warnings allegations by the product's users, purchasers, their families, other associates and bystanders. To combat the possibility of liability, manufacturers sign indemnification agreements with their suppliers and service providers (“vendors”). However, an indemnification agreement is useless if the vendor has no financial resources with which to pay the contractual indemnification.
Similarly, manufacturers and other businesses enter into relationships with a number of vendors whose services or products do not directly comprise a manufactured product, but whose services or products can nevertheless expose the manufacturer to various types of liability. These vendors can include couriers, transportation providers, landlords, and any other vendor who conducts business on behalf of the purchasing business, or whose actions can otherwise subject the purchaser to liability to third parties. In these relationships, purchasers often require indemnification. However, as in the above example, indemnification is worthless without a solvent source of money in the event of a judgment.
The prospect of judgment-proof vendors and worthless indemnification clauses leads manufacturers and other purchasers of vendor services (hereinafter “manufacturers”) to require that their vendors carry certain levels of general liability, products liability, and automobile liability insurance. Thus, in the event that a judgment is levied against the manufacturer, for which the manufacturer has an indemnification claim against the vendor, the manufacturer will have a solvent source of indemnification, in the form of the vendor's insurance policy.
A large manufacturer can have relationships with hundreds of vendors, providing a wide variety of goods and services. For each vendor, the manufacturer must decide which types of insurance the vendor must carry, and at what levels. Also, because insurance policies, by their nature, must be periodically renewed, the manufacturer must periodically contact the vendor, to make sure the vendor maintains the appropriate types and levels of insurance coverage. To standardize this process, ACORD Corporation has developed a number of forms with which manufacturers and vendors have become familiar. The ACORD forms evidence limits of various types of insurance, the name of the insurance company, the applicable insurance policy numbers, the effective dates of each policy, and other pertinent information relating to the evidenced insurance coverages. While the ACORD forms standardize the paperwork, there is still much paperwork to be done once the form is returned to the manufacturer. For example, the manufacturer must determine what types and levels of coverage are necessary for this particular vendor, and must then determine, from the form, whether the vendor has the insurance required for the continuation of the business relationship. Additionally, the manufacturer must check back with the vendor when any of the required insurance policies lapse, to make sure that the required insurance policies have been renewed. The cost of keeping current with the insurance coverages maintained by vendors can be substantial, and possibly cost prohibitive.
To automate this process a bit more, a software solution has been created. One example of this is the system that has been deployed by Periculum Services Group, of Portland, Mich. Periculum contacts the vendors in the manufacturer's name, and processes the forms received. The manufacturer is able to check on the status of individual vendors by logging into the Periculum web site, and searching for the vendor. Also, the manufacturer can give Periculum the requirements for each vendor, and Periculum can compare this information to the insurance actually carried by the vendor to determine if the vendor is in compliance with specified insurance requirements.
The Periculum system works somewhat well when the vendors are located within the United States, and the manufacturer does business solely within the United States. However, when the vendor is located outside of the United States, or the manufactured products are sold in worldwide markets, insurance requirements are complicated. Foreign countries do not have standardized forms, like the ACORD form used in the United States. Foreign law is different with respect to liability. Additionally, a domestic U.S. vendor may not know that it needs foreign insurance, because it might not be aware that its parts, machinery, or services are being used to manufacture products that are sold abroad. Currently, the only way to ensure worldwide coverage when it is needed is manual confirmation, on a vendor-by-vendor basis.
Additionally, the current system requires high level knowledge of the manufacturer's policies on the part of its staff that are interacting directly with the system. A system is needed that can automate insurance requests for international vendors, and vendors whose goods or services will be sold and used in an international setting. Additionally, a system is needed that can automate vendor insurance requests with minimal hands-on activity from those within the manufacturer company with specific insurance expertise.